U.S. Job Losses See Revival in May: Here's What It Means

Per the latest job report released by the Labour Department, the US economy unexpectedly regained 2.5 million nonfarm payroll employment in the month of May and unemployment rate fell by 1.4 percentage points to 13.3%, buttressed by the gradual resumption of businesses and re-opening of the economy.

May’s job numbers mark the reversal of record layoffs of 20.7 million and 1.4 million, registered in April and March, respectively, as employment rate saw a spike in most industries. Total number of unemployed persons came in at 21 million, down 2.1 million. Yet, average hourly earnings for all employees on private nonfarm payrolls declined 29 cents to $29.75, reflecting job additions to lower-paying lines of work.

The reported figures outpaced even the most optimistic estimates. None of the economists included in the Bloomberg survey anticipated an uptick in jobs last month. According to Bloomberg consensus data, 7.5 million job losses were expected in May while the unemployment rate was forecast to inch up to 19%, from a record-breaking 14.7% in the prior month.

Employment Across the Board

Leisure and hospitality, one of the worst-hit industries, added 1.2 million workers following job losses of 7.5 million in April. Food services and drinking places added 1.4 million positions in May against a decline of 6.1 million posts in the prior two months. It constituted about half the total nonfarm job gain. However, accommodation industry witnessed an employment reduction of 148,000 last month.

Construction reported job gains worth 464,000 in May while employment in education and health services increased 424,000 after decreasing 2.6 million in April. Retail trade payroll rose 368,000, restoring some of the 2.3 million jobs during the previous month.  Manufacturing added 225,000 job roles in the month with almost equal job gains in durable and non-durable goods components.

Government payrolls, however, continued its lay-off with losses recorded at 585,000 after rendering 963,000 positions redundant in April. Information, mining and transportation and warehousing industries also extended job losses from the previous month.

But the jobs report came with a caveat: The Bureau of Labor Statistics (BLS) confirmed that the unemployment rate would have been 16.3%, higher than the reported 13.3% figure, if it had not incorrectly labelled some furloughed employees as “working but absent”, instead of rightly classifying them as temporarily laid off.  In April, the BLS acknowledged that the misclassification error was to the tune of 5 percentage points, which meant the real unemployment rate was 19.7% instead of the stated figure of 14.7%.

The Big Picture: Full Resurgence in Employment Not Anytime Soon

Although the May data is looking encouraging, the vital question is, is it still giving us a true picture? Even the joblessness rate of 13.3% exceeds the unemployment rates in the aftermath of the financial crisis of 2008 and 2009. Today, the job level is still 20 million below the mark set in February.

Close to 50% of commercial rents is not being serviced. Several struggling retailers like J.C. Penney Company, Inc. (JCP), J. Crew, Neiman Marcus and Stage Stores were forced to file for bankruptcy protection. Nearly 30 million workers are still dependent on the unemployment sops.But for how long will the government keep granting welfare payments?. Over the next few months, we can expect a rebound in job creation. Even though the scenario will be better than what the recent-month figures suggest, there is still a long way to go before the labor market stabilizes and assumes the pre-pandemic standards.

The broad-based gains in payroll employment “indicates that the process of rehiring began sooner than the jobless claims figures suggested,” reckons Michael Pearce, senior U.S. economist, Capital Economics. “With more states moving to loosen their lockdowns in the coming weeks, particularly in the populous Northeast, employment looks set to continue rebounding in June and beyond, although we still think it will be a long time before the labour market is anywhere near back to its pre-virus state.”

Top Picks

At this stage, keeping all the positives in mind, we narrowed down our search to five stocks for investment purpose, hand-picked from leisure and hospitality, education and healthcare industries. Each stock flaunts a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Domino’s Pizza, Inc. DPZ is a top player in the Quick-Service Restaurant and is one of the largest pizza chains globally. In the United States, the company is the market leader in the delivery segment and ranks second in the carry-out division. Its firm digital ordering system, fortified international footprint and other sales initiatives are likely to aid the company in the days ahead. This Zacks #2 Ranked company recently announced that it transitioned to 100% contactless delivery model across the United Sates after having to temporarily shutter approximately 900 restaurants in the international market due to COVID-19 outbreak.As far as earnings surprises are concerned, the company boasts an excellent record, having surpassed the Zacks Consensus Estimate in all the trailing four quarterly reports, the average being 12.72%.

CVS Health Corporation CVS, domiciled in Woonsocket, RI, is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care. The company, currently carrying a Zacks Rank of 2, has four reportable segments: Pharmacy Services, Retail/LTC, Health Care Benefits and Corporate/Other. Surging demand for Pharmacy Benefit Management (PBM) and specialty pharmacy along with substantial growth observed in the retail business is encouraging. The company has a trailing four-quarter positive earnings surprise of 8.82%, on average. The Zacks Consensus Estimate for current financial-year earnings has seen two upward revisions in the past 60 days.

Medifast, Inc. MED is a leading manufacturer and distributor of clinically proven healthy living products and programs. It produces, distributes, and sells weight loss and other health-related products through websites, multi-level marketing, telemarketing, franchised weight loss clinics and medical professionals. The company has a trailing four-quarter positive earnings surprise of 14.75%, on average. The company currently sports a Zacks Rank of 1.

Perdoceo Education Corp. PRDO, based in Schaumburg, the United States, runs colleges, institutions and universities through online, campus-based and blended-learning programs. The company, currently carrying a Zacks Rank of 1, operates through three segments: Colorado Technical University, American InterContinental University and All Other Campuses. Over the trailing four quarters, the company’s earnings surpassed the Zacks Consensus Estimate on each occasion, the average being 24.46%.

LGI Homes, Inc .LGIH is engaged in the design and construction of entry-level homes, offering homes at affordable prices across Texas, Arizona, Florida, Georgia, New Mexico, North Carolina, South Carolina, Colorado, Washington, Tennessee, Minnesota, Oklahoma, Alabama, Oregon, California, Nevada, West Virginia and Virginia. It is the 10th largest home builder in the United States. The company has a trailing four-quarter positive earnings surprise of 12.66%, on average. The company is presently a #2 Ranked player.

 

5 Stocks Set to Double

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Dominos Pizza Inc (DPZ) : Free Stock Analysis Report
 
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